Bank Indonesia's August Policy Meeting Closely Watched Today
Usually Bank Indonesia ends its two-day Board of Governor's meeting on a Thursday. This August, however, the monthly meeting is planned to end today (Tuesday 22 August 2017). This meeting - expected to be completed in the late afternoon or early evening - is closely watched because some believe Indonesia's central bank is prepared to cut its benchmark interest rate.
Last week the Governor of Bank Indonesia, Agus Martowardojo, already hinted at further monetary easing in Southeast Asia's largest economy. The central bank has kept its key BI 7-day (Reverse) Repo Rate at 4.75 percent since October 2016. Previously, Bank Indonesia cut the benchmark six times, by a total of 1.5 percentage points, as structural rupiah depreciation (between mid-2013 and late-2015 amid monetary policy tightening in the USA) ceased, while inflation came under control after several fuel subsidy reforms.
Although it does not fall within the scope of its mandate, Bank Indonesia officials stated that - if Q2-2017 economic growth is disappointing - the central bank could allow further monetary easing in an effort to boost economic growth. Earlier this month, Indonesia's Statistics Agency (BPS) announced Indonesia's Q2-2017 GDP growth was indeed disappointing at 5.01 percent (y/y). Hence, Bank Indonesia officials may stick to their "promise".
Investment services company Morgan Stanley is among the institutions and analysts who believe Bank Indonesia will cut the benchmark rate by 25 basis points to 4.5 percent today. This assumption is based on the aforementioned statements from Bank Indonesia in combination with Indonesia's improved macroeconomic stability that would allow for monetary easing.
However, the majority of analysts expect Bank Indonesia to leave its key rate rate unchanged on Tuesday as that would be a safer level considering the presence of possible external risks against the rupiah. External risks include looming higher interest rates in the USA as well as geopolitical turmoil on the Korean peninsula.